US: Pending Home Sales Index

Mon Mar 30 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 0.3% -4.5% to 2.0% 3.1% 1.7% 1.2%
Pending Home Sales Index - Level 106.9 104.2 103.7

Pending home sales picked up steam in February, up a much stronger-than-expected 3.1 percent on top of a 1.2 percent revised gain in January. This is the first back-to-back gain since April and May last year. Today's report is a second shot in the arm for the ever-lagging housing sector, following last week's big surge in new homes sales.

By region, the Midwest shows a strong February gain for pending sales as does the West, a region where sales of existing homes have been flat. The South, by far the largest housing region, and the Northeast, by far the smallest, show small monthly declines.

Year-on-year, pending home sales, which are defined as contract signings for existing homes, are up a robust-looking 12.0 percent which is a 6th straight increase. But this is misleading as many deals fall through. Final sales of existing homes, in data posted last week, are up only 4.7 percent year-on-year.

An important positive in today's report is an uptick, the first since November 2014, in first-time buyers, to 29 percent from 28 percent. Lack of first-time buyers, specifically young households preferring to rent, has been hurting the housing market. The Dow is moving to opening highs following today's report.

Market Consensus Before Announcement
The pending home sales index rose 1.7 percent in January to 104.2, pointing to moderate strength ahead for final sales of existing homes. The regional breakdown showed gains in the two most closely watched regions, the South at 3.2 percent and the West at 2.2 percent. The Northeast was little changed at plus 0.1 percent while the Midwest fell slightly, down 0.7 percent.

The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

The National Association of Realtors moved up its publication schedule in 2011. Prior to 2011, the reference month was two months trailing the release date. In 2011, the reference month trails only by one month to the release month.